Competition for midmarket deal work is heating up. [...]

Like large global transactions, midmarket M&A deal activity valued up to $500 million was down year over year in 2022. Deal value fell 26% to $1.1 trillion while volume decreased 15% to 54,419, according to data from Refinitiv. But both measures just topped 2019 figures, when deals reached $925.7 billion and volume hit about 47,950.

That’s consistent with what Kristin Stark, a legal consultant and principal at Fairfax Associates, says she is hearing from a number of firms that she has asked about demand. “A lot of firms are saying [midmarket] deal activity is pretty solid, likening their levels to 2019,” she notes. [...]

Elsewhere, Duane Morris is enjoying stability given its longtime focus on midmarket M&A, commercial finance and securities/capital markets work, according to corporate chair Brian Kerwin.

“We’ve been very strategic and that has given us well-balanced growth,” Kerwin says, noting the 200-lawyer corporate department has added about 75 lawyers in the past eight years, has no plans to do layoffs, and is hiring when a need presents itself.

Firm lawyers have both buy-side and sell-side clients, which have been aided by Duane Morris’ commercial finance practice in recent months, Kerwin says. “What makes us strategically placed is that when activity is slow, our commercial finance lawyers are helping buyers look in the distressed market and private credit lenders make loans to companies that may be struggling.”

Kerwin said he expects the use of private capital to continue to increase, given the record amount of capital raised by private equity funds in recent years, coupled with more resistance on the part of traditional banks given macroeconomic conditions. [...]

Creative Pricing Strategies

While M&A private equity in particular and smaller firm additions are popular growth strategies, other large firms interested in following demand to the middle market will need to consider a shift in price and staffing, at least for the time being. [...]

Bob Kadlec, a corporate partner at Duane Morris, concurs. “For a lot of large firms, it’s not the partner time or rate that is necessarily the driver on the bill.”

That gives a firm like Duane Morris an advantage, according to Kadlec. “We might be a tick below other firms [on rates], but we’re efficient and don’t tend to have loads of folks on deals,” he explains. “Even as rates have pushed up, we have a real distinction between associate and partner rates, which is enormously helpful for clients.”

That said, Kerwin adds that Duane Morris will also consider accommodations for certain clients. “We don’t like to compete on price, but sometimes to get our foot in the door with a strategic buyer or a fund, it is worth it, for us to show that we’re every bit as good or better than the more profitable competitor,” he says.

It’s worked, Kerwin says. “We’ve had some clients come back and say, ‘Feel free to raise your rates a bit’ because the value-add is tremendous. That is the highest compliment.”

Rest assured, interest in the middle market isn’t likely to fade anytime soon. [...]

Reprinted with permission from The American Lawyer, © ALM Media Properties LLC. All rights reserved.